Hello everyone, it’s a pleasure to be back writing.
The reason behind my return to the keyboard is the recent news of the Federal Police’s Operation Harvest. Although the operation is not particularly recent, its significance has grown as the crimes being investigated have become closely linked to the sports betting industry.
Whenever controversies arise in the betting industry, I feel encouraged to write about it.
I had the honor of speaking as an expert in front of the Special Commissions for the Regulation of Miles Programs, Cryptocurrencies and Payment Methods (PL#2303) and for the Regulation of Gambling (PL#442). I think I can say with a reasonable chance of hitting the bull’s eye: Gambling, crypto and payment methods are three industries which the regulations are either new or lame.
I remember the first conversations I had with my partners at Online IPS Brazil, back in 2012, when they first approached me (still only a lawyer) to establish a “payment facilitator” in Brazil. At that point, one of their clients, an American company operating in Brazil, had fallen victim to fraud, after another “facilitator” vanished and left, taking off with all the resources of its clients.
The information they had was that the “facilitation of payments” in Brazil should comply with the regulatory and tax rails of “maintenance of residents abroad”.
Let me explain: Brazil follows a favorable taxation model for remittances from Brazil to foreign countries when the purpose of the transfer is to support dependents living abroad. For example, sending money to cover the rent and expenses of a child studying outside of Brazil.
However, this type of transfer has a statutory limit set by law, a limit that, if exceeded, demands different legal and tax treatments for this higher transfers.
The information (which not only my partners had, but countless other colleagues from the payment industry had) suggested that this approach was acceptable “here”.
And I asked: – What if a certain person sends resources exceeding this limit?
Well – they said – it is just a matter to spread the excess of this individual through all the other users and no limit will be surpassed, as monetary authorities do not look at individual limits, but the collective limit within the same batch.
– My God! That’s a crime!
This is the way some people used to do in the past and, apparently, some are still working like this.
I immediately recognized the potential serious consequences of such a system. What happens if one of these individuals were investigated by tax authorities regarding the maintenance of a dependent abroad? They would say that they have no dependents outside Brazil and the entire system would collapse like a house of cards.
Thankfully, I managed to show my (future) partners that the stories they heard were nothing but perfect descriptions of financial and tax crimes and that establishing a business based on that model was, at the same time, a violation of criminal law, tax law and the regulations set by the Central Bank of Brazil.
Unfortunately, as we are well aware, not everyone prioritizes legality. Taking shortcuts and maximizing profits often prove irresistible temptations for the greedy. For years we have offered more complex, bureaucratic and expensive services than our competitors, simply because we adhere to the rules.
Police investigations such as Harvest and Daemon operations, among others, have targeted different verticals. They found companies offering sports betting as a way of investment, indexed in cryptocurrencies’ pyramid schemes that involve international transfers falsely declared as support for dependents abroad. A real horror show.
It comes as no surprise that the President of the Congress, Federal Congressman Mr. Arthur Lira, just confirmed the formation of a Parliamentary Commission of Inquiry (CPI) focused on sports betting. If the initiative moves ahead, it can generate a tsunami in the sector.
This year, in 2023, Online IPS Brazil – the company I co-founded with my American partners – proudly celebrates its 10th anniversary in Brazil. There were 10 years of a lot of uncertainty and hard work, precisely because of a fragile and difficult to understand regulation, that, in several moments, had to be interpreted together with other rules, other principles that were not directly relevant to the payment methods’ industry.(Suggested rewrite: These past 10 years have been filled with uncertainty and hard work, largely due to a fragile and complex regulatory framework. At various times, we had to decipher this regulation alongside other rules and principles that were not directly relevant to the payment methods industry.)
Entrepreneurs like myself and companies like ours can only hope for clearer regulation, more efficient enforcement and, above all, more severe punishments (stricter penalties) for individuals who criminally disrupt an entire business ecosystem. The industry should operate smoothly and peacefully under the law.
Witoldo Hendrich Júnior is Chief Legal Officer (CLO) and co-founder of Online IPS Brazil. He is also co-founder of Online IPS Colombia, Peru and Mexico.
 Side note: some long-time gambling operators in Brazil may have a bitter recollection from these days, when they suffered big losses with these criminals, unfortunately.